Jack Dorsey Is Building a Decentralized Exchange for Bitcoin
Can Square make DeFi on Bitcoin a thing?
Can Square make DeFi on Bitcoin a thing?
This episode is sponsored by NYDIG.
Today on the Brief:
Our main discussion:
In July, Jack Dorsey, the CEO of Twitter and payments company Square, announced that Square was launching a new division focused on building decentralized infrastructure around Bitcoin. At the end of last week, we got more details about where Square is starting. The TBD division is going to kick off by building a decentralized exchange focused on bitcoin. NLW explores the reaction.
“The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: Joe Raedle/Getty Images News, modified by CoinDesk.
What’s going on guys? It is Monday, August 30 and today we are talking about Jack Dorsey and Square’s plans for a decentralized exchange for Bitcoin. First up, however, let’s do the Brief. First on the Brief today, NFTs have had an absolutely monster month. Heading into this month, the previous high of trade volume for NFTs was in March, which saw $315 million. The leading venue for that was Nifty Gateway. In July, however, there started a resurgence, particularly around the collectible artwork sets preferred by NFT early adopters, so CryptoPunks, Rrt Blocks, etc., the JPEGs, as the kids say. July didn’t see new all time highs came close at $300 million, and this time it was led by OpenSea, which also announced a $100 million funding round from Andreessen Horowitz.
Well, August absolutely dwarfed everything that had come before. With the month not even complete, NFTs have done $2.3 billion in volume; of that, a staggering percentage, $2.23 billion, comes from OpenSea. An example of the mania came this weekend in the form of the Bored Ape Yacht Club dropping a new set of Mutant Apes. Those Mutant Apes made more than $90 million in an hour. And speaking of apes, that community also got super jazzed when NBA GOAT Steph Curry bought a $180,000 Ape and then joined their Discord. As you can tell, this sets the backdrop for what will almost assuredly be the debate throughout the rest of this year: are NFTs ICO 2.0 or are they the new vanguard of culture?
In that second column, Purveyor of shitcoins and fine art, “purveyor of s**tcoins and fine art,” to read his Twitter bio, tweeted today: “Excited to be working together with Zhu Su and Kyle Davis from Three Arrows Capital to launch Starry NightCap , a NFT fund. Our thesis is simple, we believe the best way to gain exposure to the cultural paradigm shift being ushered in by NFTs is owning the top pieces from the most desired sets. We are cognizant of the concerns many have about funds entering this space and we will seek to always do right by the community. Before year’s end we aim to launch a NFT education portal, explore ways to bring more exposure to up and coming artists, launch a physical gallery in a major city, ensure works in our collection remain open to the public via virtual galleries, and experiment with various community building initiatives. We strive to be good stewards of the space at large and use our influence to uplift and empower others. The NFT space is not a zero sum game, it is driven by strong flywheel effects and functions best when the pie is growing for all.” I expect this to be not the last of this type of announcement and is certainly something we’ll have to come back to.
Next up on the Brief, Centre’s global network of stable coins. I discussed over the weekend an alternative take on how the global CBDC battle could play out and basically, in case you haven’t heard that, the TLDR is that if you look at CBDCs as something that central banks build, then China is way ahead of the rest of the world. There’s no doubt about it. They’ve had tests in major cities all over that country. It’s available for use in some limited ways. Meanwhile, over here in the U.S., we’re still just talking about it. Europe is also polling citizens about it, not close. But what if on the other hand, the U.S. were to simply give existing USD fiat stablecoins the power and force of law, recognizing and making USDC, for example, official? All of a sudden, you’d be looking at a formal digital dollar system that had nearly a trillion dollars a year in settlement. That remains speculative for the future. But, the setter consortium that oversees USDC today made some interesting announcements. First, they announced six new hires including three new C suite members and second, they’re turning their attention global. Said the CEO David Puth to The Block, they’re seeking to build “a global network of stablecoins. We’ve been working on building up partners overseas with whom we can ultimately connect interoperable stablecoins built to Centre standards in other countries similar to USDC.” Does that mean stablecoins pegged to other currencies? It sure seems to. Puth again says: “Right now, we are working with a couple of partners and are looking at potentially two different stablecoins in the European region. Centre is also clearly trying to focus on a payments use-case, including in the NFT space.
Third, and finally on the Brief today, the Associated Press reported late last week that Cuba’s governments said that it would be formally recognizing and regulating cryptocurrencies. The government published a resolution about the announcement in their official Gazette. The central bank will be in charge of setting regulatory rules and figuring out how to license companies in the ecosystem. Now, the justification said that the central bank was allowed to authorize cryptos for “reasons of socioeconomic interest.” This has led many to assume that this is in some ways a counter-move to the embargo rules that were strengthened under former President Trump. From Gizmodo: “Remittances from the U.S. to Cuba have been largely blocked since 2019, following President Donald Trump’s reversal of the Obama administration’s attempt at normalization of relations with the island nation, and the Biden administration has signaled that it has no intention of easing the crippling economic sanctions imposed on Cuba: ‘There are a number of things that we could consider doing to help the people of Cuba but it would require a different circumstance or guarantee that they would not be taken advantage of by the government,’ President Biden said last month, according to the Business Standard. ‘For example, the ability to send remittances back to Cuba, I would not do that now. Because the fact is, it is highly likely the regime would confiscate those remittances or big chunks of it,’ Biden continued.”
So, given that attitude, I think it’ll be interesting to see what the Cuban government actually allows for. Will they try to impose a layer of centralization on citizens that validates those fears, or will this in some ways open up a boom in human freedom? Definitely going to be one to watch so I will keep my eyes peeled for that.
With that, let’s move to our main discussion. In July, Jack Dorsey and Square doubled down on their commitment to Bitcoin. First, they announced they would be open-sourcing the development of a Bitcoin hardware wallet. Then they went even further with the announcement of TBD, not just a special project. TBD is an actual new business division of Square that sits alongside its Seller, Cash App and Tidal divisions. Here’s how Jack first described it: “Square’s creating a new business joining Seller, Cash App and Tidal focused on building an open developer platform with the sole goal of making it easy to create noncustodial, permissionless and decentralized financial services. Our primary focus is bitcoin. Its name is TBD. Like our new bitcoin hardware wallet, we’re going to do this completely in the open, open roadmap, open development and open-source. Mike Brock is leading and building this team and we have some ideas around the initial platform primitives we want to build. How is this different from Square Crypto? Square doesn’t give direction to Square Crypto, only funding. They choose to work on LDK and are doing an incredible job. TBD will be focused on creating a platform business and will open-source our work along the way.”
So when you read that, a lot of people noted that they sort of sounded like they wanted to build DeFi on top of Bitcoin and Mike Brock’s tweets around the announcement seem to point in that direction as well: “I also believe that technology has always been a story of decentralization. From the printing press, to the internet to bitcoin – technology has the power to distribute power to the masses and unleash human potential for good, and I’m convinced this is the next step. As Jack said, we’re going to be biased towards being open and transparent. So we’ll be sharing a lot more about our plans in the coming days and weeks. We’re also going to be thinking of ways to include the community in our planning, so stay tuned.”
Well, at the very end of last week, we got confirmation that they were indeed looking in that decentralized finance direction. Here’s Mike Brock’s thread about it from Friday “There’s been a lot of speculation about what TBD is and isn’t. Over the last few weeks, our team has been determining what needs to be determined. We wanted to finally share our direction and we have some questions. We believe bitcoin will be the native currency of the internet. While there are many projects to help make the internet more decentralized, our focus is solely on a sound global monetary system for all. But including all requires a few pieces we think are missing. Getting bitcoin today typically involves exchanging fiat on a centralized custodial service like Cash App, or Coinbase. These on and off ramps to bitcoin have a number of issues and aren’t distributed evenly around the world. This is the problem we’re going to solve: make it easy to fund a noncustodial wallet anywhere in the world through a platform to build on and off ramps to Bitcoin. You can think about this as a decentralized exchange for fiat. As we said, this platform will be entirely developed in public, open-source, open protocol and any wallet will be able to use no foundation or governance model that TBD controls. Permissionless or bust, we’d love for this to be bitcoin native top to bottom, and that’s leading us to consider things like RSK Smart. However, the gaps needed to build this may be too large, which would also have us consider other chains as a bridge. Some of the gaps we currently see around cost and scalability. Lightning is solving for this with payments, we needed to solve for exchange infrastructure between digital assets like stablecoins. And here’s the question and challenge: what projects exist today to help us solve these problems in a Bitcoin native way. Now that we’ve determined our topic, You’ll hear a lot more from us as we progress. But for now, thanks Bitcoin Denizens!”
Many, many people took Mike up on that question about who had been building similar things. One of those was Bisq who tweeted: “Jack, we’ve spent the last 5+ years building Bisq v1.0 to be the go-to peer-to-peer decks for bitcoin power users. We’re working on v2.0 right now to take on everyone else. Let’s talk: our heads together could result in something better than any of us could imagine.” Jack actually responded to that: “So let’s go meet Bisq.” This is the tweet thread that’s pinned to the top of their Twitter: “Why Bisq? Many of you already know, please share this thread with those who don’t. TLDR: Bisq is a paradigm shift. Bisq is to other exchanges the way bitcoin is to banks. Why run your own Bitcoin node? You already know: trust no one. Sovereignty. No asking permission. That’s the whole point of Bitcoin, no compromises. So why compromise when trading bitcoin? Like bitcoin, Bisq is open-source software, you don’t trade on a website, you trade on a program on your computer directly with others on a peer-to-peer network. It’s kind of like BitTorrent, but for bitcoin. So, also like bitcoin. When you run Bisq, you become master of your own node on a peer-to-peer network. Except instead of validating blocks for the Bitcoin network, you provide liquidity to the Bisq network. Just like Bitcoin enables you to be your own bank, Bisq allows you to be your own exchange. Once you see that the case for Bisq is clear, it’s hard to go back to anything else.”
Besides the folks who are pointing to a specific technology that they wanted the team at Square to look into, there were also a fair number of cynical takes, particularly from other non-Bitcoin DeFi communities who found it somewhat annoying that Bitcoin Maxis would spend years ripping on DeFi only to be into it when a Bitcoiner wants to do it. Someone wrote “DeFi on Bitcoin is like an app store on Blackberry.” While I understand that frustration, and genuinely wish that people would spend less time ripping on each other on Twitter, I do think it’s more intellectually coherent than many of those critics might think. If your base is caring about the nature of the underlying asset, a global sound monetary system, and you have problems with how Etherium or any other layer one DeFi chain was created or is governed, that doesn’t mean you wouldn’t want the sort of decentralized financial rails on top of your sound money asset in general, it just means that you’re not willing to sacrifice the principles of that asset at the center. Now, there’s a ton of debate there. I’m just saying that it’s not actually intellectually inconsistent to be Bitcoin only but still interested in DeFi that happens on Bitcoin.
Either way, the more interesting thing to me, by a lot, is the relevant context. We’ve just gone through this very fascinating process of watching the fight around the infrastructure bill happen, where it’s very clear that certain parts of the U.S. government are extraordinarily nervous about this decentralized, noncustodial term for finance, these tools are evolving a hell of a lot faster than the regulator’s ability to actually wrap their heads around them. So it’s gonna be interesting to see what happens when a large, publicly traded company wades into the space. For now, I think it’s pretty awesome that Square is building this and I think it’s extra awesome that they’re doing it as not just some sideshow, but as a main business division. I’m certainly going to be keeping a strong eye out on this one. And I anticipate that we’ll have a lot more to discuss about it in the weeks to come. For now, guys, I appreciate you listening and I hope your week is getting off to an awesome start. Until tomorrow, be safe and take care of each other. Peace!